Investing in mutual funds has now become a popular investment option amongst new investors looking to grow their wealth systematically. It doesn’t matter whether you are a beginner or an experienced investor; understanding how to invest in mutual funds can help build a disciplined, diversified portfolio.
In this guide, we’ll explore the steps and benefits of investing in mutual funds.
What is a Mutual Fund?
A mutual fund is a professionally managed investment vehicle. The AMC (Asset Management Company) pools funds from multiple investors and invests them in equities, money market securities, debt instruments, or a combination of assets.
Each investor holds units in the fund that represent their share of the fund's holdings. Fund managers employed by AMCs manage these funds with the aim of generating returns in line with the fund’s investment objective. The Securities & Exchange Board of India (SEBI) strictly regulates the mutual fund segment in India, ensuring transparency.
Before we take a look at how to invest in mutual funds online, let’s understand the different channels through which you can invest:
Multiple Channels Available for Mutual Funds Online:
- AMC Websites: You have the option to directly invest in a mutual fund via the portals or websites of the Asset Management Company. Here, investors can go for ‘Direct Plans’. These plans have low expense ratios as no distributor commission is involved.
Mutual Fund Distributors: You can invest through a SEBI-registered mutual fund distributor. They can be:
- Stock broker
- Bank
- Individual advisor
- Online distribution platform
Following the regulatory norms, the MFDs are required to have:
- Certification from the National Institute of Securities Management (NISM)
- A valid AMFI Registration Number (ARN) - Registration with the Association of Mutual Funds in India (AMFI)
- A valid EUIN (Employee Unique Identification Number) - For sales personnels
- MF Utilities: You can also transact through MF Utilities Pvt. Ltd. (MFU). It is a shared transaction platform that is supported by participating mutual funds. The main benefit is that you can track and manage investments across multiple AMCs through a single interface.
Stock Exchanges: You can buy mutual fund units through stock exchanges like NSE (National Stock Exchange) - MFSS Platform & BSE (Bombay Stock Exchange) - StAER Platform.
You'll be required to complete a one-time registration to use this facility to invest in mutual funds.
How to Invest in Mutual Funds Online?
Now that we know the ways, let’s understand how to invest in mutual funds online:
- Define Your Goals: Before you invest in mutual funds, clearly state your goals for investments. For eg, you want to save and grow wealth for
- Short-term goals: Marriage, buying a home, etc.
- Long-term goals: Child’s future, retirement, etc.
KYC (Know Your Customer): The very first (mandatory) step to invest in mutual funds is completing your KYC. You’ll be required to submit the following documents for the same:
- PAN Card
- Aadhar Card
- Address Proof
- Bank Account Proof
KYC is mandatory under regulatory guidelines. It helps verify your identity before investing.
Choose the Right Type of Mutual Funds: Different types of mutual funds are available to invest in:
- Equity mutual funds
- Debt mutual funds
- Hybrid mutual funds
- Life-cycle funds
Choose the one from your preferred channels (AMFIs, MFDs, etc) that best suits your investment goals and risk tolerance.
- Lump sum or SIP: You can choose to make a one-time lump sum investment or opt for Systematic Investment Plans (SIP) - recurring investments. Many beginners consider investing through a SIP mutual fund app, as it automates monthly contributions and encourages disciplined investing.
- Make a payment: You can pay online for mutual funds through various channels, including net banking, UPI apps, NEFT transfers, or auto debit/mandate for SIP investments.
- Track Investments: Keep monitoring the mutual fund investments' performance to ensure they are aligning with your financial objectives.
How to Invest in Mutual Funds Offline?
You also have the option to invest in mutual funds through offline modes: You need to:
- Complete KYC: Mandatory for offline mutual fund investments. Complete the process by providing your PAN card, identity proof, address proof, and bank account statements.
Submit Form: The next step is to visit one of the following:
- Branch office of the respective Asset Management Company (AMC)
- Designated Investor Service Centres (ISCs)
- Offices of Registrar & Transfer Agents (RTAs)
- Mutual Fund Distributor’s office
You can request the mutual fund application form, fill it out with basic details, and submit it.
- Make a Payment: You can make a payment by submitting a cheque or a demand draft in favor of the scheme you are choosing to invest in. It should be linked to your registered bank account.
- Receive Confirmation: Once your application is processed, you will receive confirmation and allotted units based on the applicable Net Asset Value (NAV) through an account statement or email.
Remember: Investing in mutual funds online means you'll need to visit branches in person for future actions such as redemptions or changes to SIP amounts.
Advantages of Investing in Mutual Funds:
Key benefits include:
- Portfolio Diversification: Investing in mutual funds provides exposure to a wide range of securities (equities, bonds, etc). It reduces the impact of poor performance by a single investment.
- Professionally Managed: Funds are carefully researched and managed by experienced, dependable fund managers employed by AMCs, saving you time and effort.
- High Liquidity: Mutual funds have high liquidity, meaning they can be bought and sold on any business day, allowing you to convert your invested assets into cash without any hassle.
- Minimum Investment: Investing in mutual funds, especially through SIP, is affordable for retail investors, allowing them to start with small amounts, often as low as ₹100.
- Regulatory Oversight: As mutual funds are strictly regulated by the SEBI, they are considered a relatively safe investment option, ensuring transparency and investor protection.
- Tax Benefits: Holding mutual funds for the long term can provide tax benefits, as long-term gains are taxed at a lower rate than short-term gains. You can also experience tax benefits by investing in Equity Linked Saving Schemes (ELSS), which qualify for deductions on income of up to ₹1.5 lakhs under 80C. They have a 3-year lock-in period.
- Convenience & Flexibility: You can invest across multiple scheme types, such as equity, debt, and hybrids, to suit your risk tolerance and financial objectives.
The answer to “How to start investing in mutual funds in India?” is through structured and accessible channels. Whether you choose lump-sum investing or start with a SIP through a mutual funds app, mutual funds offer diversification, professional management, and flexibility to suit different financial goals.
